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BREAKFAST WITH THE FOOL
Hard Times at Microsoft?

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By Rick Aristotle Munarriz (TMF Edible)
October 19, 2001

Note: Over the next several weeks, we will be revising some of Fool.com's editorial content offerings. Unfortunately, as part of these revisions, Breakfast With the Fool will be discontinued today. We thank you for your readership and support as we make some editorial changes and improvements. Stay tuned for some new features coming soon.

Is Microsoft (Nasdaq: MSFT) ready to fly again? Backing out a $1.2 billion hit in its investment portfolio, the software titan reported profits of $0.43 a share. That was three cents better than analysts were expecting as sales grew by 6% to $6.1 billion.

The positives were highlighted by double-digit revenue growth in its server apps, SQL database and exchange software segments. Its MSN.com Internet service also showed continued strength as sales grew by 22% and the access provider is now claiming more than seven million subscribers.

However, the company did see dips in its productivity and gaming software. It also tried its best to water down December-quarter optimism. The company is now looking at a bottom-line that will bring in roughly $0.50 a share. That is four cents behind Wall Street's expectations. While Microsoft is notorious for talking down earnings to the point where it can clear the hurdle, even Microsoft's visibility is blurred slightly at this point as corporate spending and the personal computer scene struggle through these lackluster economic times.

With a little bit of good news and a little bit of bad, the company doled up plenty of fodder for both sides of this week's Dueling Fools feature. However, the real tests lie ahead.

With the Windows XP and Xbox rollouts now just days away, you can bank on hearing a lot about Microsoft in the news over the next few weeks. The XP operating system will provide a feature-rich upgrade to its Windows franchise that hasn't seen a launch this significant since the debut of Windows 95. The Xbox is Microsoft's $299 home video game console system. It's ambitious, yet it pits the company against established gaming wizards Sony (NYSE: SNE) and Nintendo.

So "X" might not mark the spot for XP and Xbox. Both new products present a great deal of risk. That is offset by the possible upside that success in either venture would bring. Microsoft is not afraid to take chances. It's done pretty well of making the most of the opportunities presented in the past.

News to Go

Pass the sun block. Sun Microsystems (Nasdaq: SUNW) is reporting a nickel a share loss for its fiscal first-quarter on a steep decline in revenue. The top-line sank to $2.9 billion from a $5.1 billion showing a year ago. Sun's set came as no surprise since the network computing specialist had warned investors earlier this  month. The California company expects to return to profitability by the June quarter.

Holy Beanie Babies, eBay (Nasdaq: EBAY) is still hot. The online auctioneer trounced expectations and bid up its fourth-quarter prospects. Quarterly earnings came in at $0.12 a share on a 71% surge in sales to $194.4 million. It's also raising the ante for the current period. While the company was originally expecting December-quarter revenue to come in between $195 million and $205 million, it is now hiking up both ends of the range by an extra $5 million. The strong showing and bar raising is an impressive feat as the company is a month into its 100-day Auction for America in which it is waiving its fees for charitable listings.

There's no business like e-business for PeopleSoft (Nasdaq: PSFT) as the enterprise software maker reported earnings from recurring operations of $0.15 a share, three cents ahead of Wall Street's projection. Thanks to a growth in license revenue for its flagship PeopleSoft 8 -- an excellent name for a B-movie if there ever was one -- sales topped the half-billion dollar mark.

No one is putting struggling cow-patched computer maker Gateway (NYSE: GTW) out to pasture just yet. While the company's third-quarter loss was in line with already lowered expectations, Gateway sees shipments picking back up in the current quarter. Excluding charges, the company lost $0.17 a share on revenue of $1.4 billion. The company managed to grow its domestic market share in the consumer and education segments and is expecting to report a quarterly profit to close out the year.

Last doughnuts with the Fool
Finally, it's true. Come next week you will have to enjoy your Krispy Kreme (NYSE: KKD) glazed doughnut and your Starbucks (Nasdaq: SBUX) double latte without the company of your Breakfast With the Fool. It was September 21, 1998, when Yi-Hsin Chang and Brian Bauer rolled out our first morning plateful. The Nasdaq Composite stood at 1663.77 back then. It's at 1652.72 this morning. Not a lot has changed. Everything has changed. As we refocus our efforts towards enhancing many of our existing features and rolling out new ones, we want to thank you for being part of our community and appreciate your patience as we evolve in order to serve you. Hey. You still have some of that doughnut glaze on your chin. So, onward and forward. Like Wendy's (NYSE: WEN), we just don't do breakfast anymore.

Rick Aristotle Munarriz believes that breakfast is the most important meal of the day. So eat up! His suggestion for today is Good-bye Pie. Yes, this is in fact our last Breakfast piece -- so make enough to last you a few extra servings. Take a pie pan with a graham crust bottom and add cinnamon apple filling as well as banana-stuffed French Toast (cut into small squares) and walnut pieces. Cover with a white chocolate raspberry unrolled crepe and drizzle warm caramel after it is done baking. Rick's   stock holdings can be viewed online, as can the Fool's disclosure policy.

Editors' Pick

When Breakfast With the Fool debuted on September 21, 1998, Microsoft and its competition was the subject matter in the Rule Maker Portfolio (then called the Cash-King Portfolio), which in its first year was up 5.6%. The port has now fallen on tougher times, down some 30% since its inception. Fool David Forrest takes a look at some the port's mistakes and ponders a few lessons to be learned in "Is the Rule Maker a Valid Strategy?"